MARKETS | Contributed Content, Singapore
Usama DeLorenzo

Check out the contextual differences in financial regionalization


‘Have you seen the big five?’ said the gentleman who drove the van from Gaborone airport to the hotel where I was staying to attend the African Regional Conference organized by SWIFT in Botswana.

My instinctual response would have been ‘Yes!’ because to me, the term ‘big five’ gives reference in my mind to the ASEAN 5, the larger five of the ten ASEAN countries.

I did not respond in that manner because his big five and my big five were very different as I soon confirmed. To what he was referring were the big five game animals that showed the most ferocity when cornered by hunters and thus were granted the title ‘The Big Five’; the lion, the leopard, the Cape buffalo, the rhinoceros and the elephant.

So much about how we conceptualize and how we plan is contextual, based on tradition, history and culture. Even in the case of financial regionalization, the contextual differences play a large part of how process is established and how progress is gained.

For instance, while leaving the reasons behind the phenomenon aside, let’s consider an example of the difference in financial regionalization of ASEAN versus the regionalization in Africa.

There are some key differences in approach that we can draw from this comparison; let’s also predicate all of the following by saying that there is no right or wrong answer or approach – there are just different types – and that this is a simplistic expository exercise.

ASEAN integration, for those who know it well, means a fair amount of reading. There are studies about what is and has been happening in markets within and around ASEAN and there are reports based on those studies and on consolidated studies as well.

There are also future-focused documents that are categorized by regulation, market type and industry segment, around potential strategic regional financial infrastructure options that support other various types of documents that outline the political will of the collective of nations and, in some cases, single countries as well.

The bottom line is that ASEAN, as a collective, has a tremendous amount of study around the various facets of what it is and what will help it integrate into a region. There is no doubt about the usefulness of preparedness but at what point does analysis required turn into analysis desired and preparedness turn into analysis paralysis?

African integration covers about half a dozen regions. There is a visible collaborative effort towards financial integration in Africa; this is resonant throughout the continent, regions and sub-regions.

The goal seems to be to put a regional infrastructure in place and deal with issues related to other types of harmony (legal, policy or regulatory) in a structured manner during and afterwards infrastructure implementation.

Within a few short years, a regional real time gross settlement system has been designed, its implementation planned and it will go live in July of this year.

This relatively fast approach places emphasis on putting infrastructure implementation first, based on the broader decision to integrate into regions.

Taking the decision to implement something that has been tried and tested elsewhere is a relatively secure strategic trajectory. The question lies in whether the relatively quick approach will breed unidentified and unrealized complication in the future?

There are so many opinions on the matter; as stated before, there is no right or wrong answer. The various experiences around the world suggest that there are a few facets of financial integration that are vital.

Firstly, that financial integration needs a champion. Whether it is solely the technical aspects of financial integration or otherwise, cohesion created through the leadership of one particular person in one particular space is unparalleled to any other form of leadership.

Secondly, at the working level, there is an acute need to clearly delineate between what defines both the collaborative and the competitive space in both, within the financial industry and between nations.

We should hark back to the evidence that in extreme cases in the history of the world, the corporate success agenda led to monopolies and that the pursuit of national prominence and patriotism have been motivators for military action; which allows us to segue to our last point nicely.

Thirdly, and finally, the participation of, not only the voice of, all relevant stakeholders is incredibly important in the integration agenda. The involvement of the private sector has hastened progress in the integration process in Europe, and is proving successful in Africa as well, and has provided the much needed focus on the nuts and bolts of regionalization.

The role of the private sector in leading integration is a natural one due to the fact that business people who have to execute business across borders will be able to provide the most valuable insights.

By virtue of their roles and responsibilities, government agencies tend to be nationally focused; and this is a more than acceptable natural state for these bodies.

A more efficient approach is definitely possible through regional initiative bodies (working groups, committees and taskforces) in ASEAN empowering private industry with information and support to lead integration initiatives by partnering with private enterprise.

Aside from needing a champion to lead integration, delineating between the competitive and collaborative spaces and ensuring that stakeholders have a voice and a role, there are two integral components necessary to ensure that markets can become technologically aligned.

These two integral pieces of the puzzle required for the technological part of financial integration are the technical infrastructure that connects institutions across borders and the agreed language (along with a dictionary for that language) for communication between institutions using that common technical infrastructure.

The Southern African Development Community Bankers Association has agreed on a common technical infrastructure that will go live this July with four countries initially. To facilitate the communication utilizing this common infrastructure, SADC has agreed on a common communication messages that focus on cross border issues; leaving domestic issues to the domestic market.

Finance Minister Kenneth Matambo, of Botswana, stated during his keynote at the African Regional Conference that ‘payment and settlement systems are an important tool in economic empowerment’. This is indeed true if finance is the lubricant in the engine of economic growth, which is business.

The big five in ASEAN, namely Thailand, Malaysia, Indonesia, the Philippines and Singapore, have a tremendous responsibility resting on their shoulders as the leaders in this regional grouping during the integration process. ASEAN has a big commitment to fulfill to its citizens and to the rest of the world.

December 2015 is not very far away and there is much at stake. It is time that ASEAN formally start reaching out to businesses and its citizens to form partnerships and to inculcate the singularity of ASEAN.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.

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Usama DeLorenzo

Usama DeLorenzo

Usama is ASEAN Initiative Director for SWIFT in Asia Pacific and is responsible for coordinating SWIFT’s support to ASEAN member states in their goal of realising an integrated financial system through various initiatives towards the envisioned ASEAN Economic Community.

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